Erich Schiff: Il Risparmio e l'interesse nella grande industria bancaria. Antonio Graziadei (1942)

Erich Schiff’s review examines Antonio Graziadei’s account of interest-rate determination in commercial banking. Its central judgment is that bank lending deserves a distinct supply-side analysis, but that Graziadei’s identification of the supply price of loans with unit banking costs is insufficiently established. Schiff first reconstructs the book’s demand-and-supply framework, then explains its principal contribution, and finally questions whether the model captures the conditions governing banks’ lending decisions.

Graziadei treats the interest rate on capital lent by banks through partial-equilibrium analysis. On the demand side, he adopts Keynes’s view that the relevant demand is for money capital generally, rather than for loanable funds alone. This borrowing from Keynes does not make the analysis dynamic:

Graziadei's analysis is essentially static, and he expressly rejects the idea that profit and interest appear only in a dynamic society.

The demand curve slopes downward and possesses some elasticity at practically all points. Schiff reports Graziadei’s use of Bresciani-Turroni’s calculations relating changes in the Bank of England’s discount rate to the volume of bills presented to it. These calculations support the conventional proposition that central-bank discount policy can influence demand for capital. The review presents this as supporting evidence for Graziadei’s demand assumptions, while locating the book’s main contribution elsewhere.

That contribution is the distinction between capital supplied by private individuals and capital lent by banks. The former depends on accumulated savings and, in Graziadei’s account, does not constitute a cost curve. Bank lending, by contrast, is treated as an output whose supply price can be explained through the costs of producing it. These include administration and foundation expenses, interest paid out, and insurable and noninsurable risks. Dividing their total by the sums lent produces a unit-cost curve, which Graziadei identifies with the supply curve for bank loans. He assumes that these costs decrease across a broad range of expanding business, rising only at the smallest scale and beyond an optimum reached at a relatively large volume of transactions.

The resulting model is Marshallian: under competition, the intersection of the downward-sloping demand curve and the banking-cost supply curve determines both the interest rate and the quantity lent. Cost reductions and other changes can then be represented by shifts of the curves. Graziadei claims wide explanatory scope for this framework, applying it to variations in bank-mediated capital supply and demand before discussing alleged long-term movements in interest rates and reviewing competing theories.

Schiff accepts the value of separating bank lending from other forms of capital supply:

The main original idea of the book lies in the suggestion that the factors working on the supply of bank loans—as distinct from money capital lent by private individuals and nonbanking corporations—should be subjected to special analysis.

He qualifies Graziadei’s claim that almost all forthcoming capital passes through commercial banks, regarding it as probably no longer accurate. Nevertheless, banks remain sufficiently important to justify investigating the distinctive factors shaping interest rates within their operations. The review thus distinguishes the merit of the research question from the adequacy of the proposed solution.

Schiff’s decisive objection concerns the passage from accounting costs to a supply-price schedule. Including interest on deposits among banking costs may account for some influence of deposited capital on lending. Yet the volume of deposits also matters when those deposits bear no interest:

But banks do not pay any interest at all on certain categories of deposits, whose volume is certainly not a matter of indifference in the lending policy of the banks.

This counterexample exposes a potentially important supply condition that cannot be represented simply by an interest expense. Schiff ends by asking whether other determinants of capital supply likewise resist compression into a Marshallian unit-cost curve. He offers no replacement model; his conclusion is a methodological reservation. The review’s significance lies in preserving Graziadei’s institutional distinction while challenging the explanatory sufficiency of the industrial-cost analogy on which his banking theory rests.